Simply put a Short Sale is selling a piece of property for less money than needed to pay off the current Mortgage. For example, the seller owes $100,000 for the property, but on the Open Market it is only now worth $85,000. They have two options at this point:
Option #1 Sell the Property for $85,000 and go to the closing table with an additional $15,000 to Satisfy the Mortgage they owe.
or
Option #2 Go back to their bank and ask them to "Forgive" the $15,000 difference.
Now, the likelihood of having extra cash around to put in to pay off your mortgage in this market is slim; therefore, many people are choosing to walk away thinking they have NO OPTIONS. The bank will NEVER forgive the difference, right? Additionally, I can't pay a Realtor, Attorney, or Taxes. So what do I do?
Isn't it better to walk away and let the bank Foreclose???
-NO! The answer is you HAVE Options, especially if you ACT soon enough. It is MUCH better to Sell Short than to Foreclose. First off, you have so much more control. Secondly, the effect on your Credit is substantially less. This is most import if you intend to purchase an other house in the near future. A Foreclosure hit could push you out up to 7 years before you are able to apply for a Mortgage again.
Will the banks consider letting me Sell Short?
-YES they will, but like anything It is a Process.
What about the FEES?
-All of the fees: Realtor Fees, Attorney Fees, etc. are wrapped and negotiated into the Short Sale.
The biggest problem I find is that people are embarrassed at the thought of having to let go of their homes especially if it is for financial reasons; therefore, they are waiting too long to act. The bottom line is it is a tough market out there. And if you need to sell your house for one reason or an other, and it is no longer worth what you need to satisfy the Mortgage, there is nothing to be embarrassed about. You are a vicim of the economy, period. If you wait until the bank is too close to or has already initiated Foreclosure proceeding, it is MUCH more difficult to get them to halt them and have time to sell the property. (Not impossible mind you, just more difficult)
Well What's Involved with Short Selling my House?
1. Your FIRST step is to contact a skilled Short Sale Expert like myself.
2. I'll come out and do a Competitive Market Analysis (CMA) on the property. Like I would do on any other. This will give us a range where the house will sell on the Open Market.
3. We'll decide on a Price and get the property prepped to put onto the Market.
4. You will need to IMMEDIATELY call your bank and let them know you are working with a Licensed Realtor and are ACTIVELY trying to sell your property.
The biggest thing here is to HALT any kind of Foreclosure proceedings if possible, especially if the sale of the property is for financial reasons and your are behind on your Mortgage. Some times they will allow you to go on payment plans for a certain amount per month for a certain amount of months etc etc to keep you out of Foreclosure and allow you to sell. Sometimes they make you apply for a loan modification. I've heard of many different scenarios.
5. Request the Bank send you/me their Short Sale Package. We will fill that out completely, gather the necessary paperwork (pay stubs, bank statements, etc) and basically wait for an offer.
6. Once a Valid Offer is received, we will submit the entire package to the bank for consideration.
How Long Can this Process Take?
- Once the offer is received and submitted it can take 3-4 MONTHS for the bank to come back with a decision. It is NOT a quick process. But depending on the bank, the time varies greatly! There are many hands involved in the process that have to sign off on this decision. And often times getting updates on their progress is VERY Difficult!
What happens if the bank says NO?
-The Bank most likely will not say NO per se , but then may come back to the buyers with a Higher Amount that they will accept. At which point we go back to the buyers to see if they can meet the amount. If they can't pay the price, we start over.
What if the bank says YES?
- If the bank accepts the Offer. They will come back with a closing date, 10-30 days out most likely, and you will close as you would with a normal sale.
What could I still have to pay for?
-Once the property sells, and for example the bank forgives $15,000. You COULD be taxed for that amount by the government as INCOME.
For a Seller it is definitely a valid, necessary, and common solution to selling a devalued home in the Current Housing Market! It is nothing to be embarrassed about, and it DOES work!
For a Buyer it is definitely a GREAT way to get an excellent price on some GREAT pieces of property. However, the process is very emotional and not for the faint of heart. Keep your expectations in place. You are dealing with big banks and faceless voices. You will have to spend money on Inspections and Purchase and Sale pretty much right out of the gate. It could take quite some time, be very difficult to get updates while waiting, and at the end of the day they could come back and say NO to the price you offer. The risk to you is a few hundred dollars and the time waiting for the answer. But if it is truly your dream home, and the price is right, it is WORTH it!
Either way, Short Sales are HERE to STAY, especially over the next 3-5 years!!!
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